Set inventory and fill rate targets

Who this is for

Founder led lower-middle market distributors and light manufacturers with 5 to 50 million in annual revenue.

The quick answer

Set targets by item class and by customer promise. Many distributors start near four to eight turns overall with A items higher. Many light manufacturers target six to twelve turns on finished goods with raw materials lower. A good fill rate target is ninety five to ninety eight percent for A items and lower for B and C items. Confirm targets with customers and watch stockouts and excess together.

The method in seven steps

Classify items
Use an ABC view based on revenue and criticality. A items are high value or service critical.
Write the service promise by class
For A items, state the fill rate you will protect and the standard lead time. Set lighter promises for B and C.
Set turns by class
Choose higher turns for items with steady demand and reliable supply. Allow lower turns for lumpy demand or long lead materials.
Align replenishment rules
Pick the method that fits the promise. For example reorder point and safety stock for A items, periodic review for B and C items.
Balance stockouts and excess
Track stockouts and days of supply. Improve forecast error on A items first.
Review with key customers
Confirm that the promise matches what they value. Adjust targets when contracts or seasonality change.
Audit monthly
Compare actual turns and fill rate to targets. Fix top offenders by root cause, not by adding blanket inventory.

Example

A distributor moved to class based targets and lifted A item fill rate to ninety seven percent while reducing total inventory days through better rules for B and C items.

Pitfalls and fixes

One target for every item. Class based targets work better.
Chasing fill rate without checking excess. Watch both.
Promises that operations cannot meet. Confirm supply and capacity.

Checklist

ABC classes defined
Service promises by class
Targets for turns and fill rate
Replenishment rules aligned
Monthly audit and root cause fixes